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Philippines Monetary Policy April 2024

Philippines: Central Bank stands pat at April meeting, turns hawkish

At its 8 April meeting, the Monetary Board of Bangko Sentral ng Pilipinas (BSP) kept the target reverse repurchase (RRP) rate unchanged at 6.50%. Concurrently, the rates on the overnight deposit and lending facilities—which establish the floor and ceiling of the interest rate corridor—remained at 6.00% and 7.00%, respectively. The decision met market expectations.

The BSP kept rates at a 17-year high in April as inflation strengthened for the second consecutive month in March, the Bank raised its 2024 risk-adjusted inflation forecast to 4.0% from 3.9%, and inflation expectations rose. Further pushing the BSP to stand pat, the Philippine peso has remained under pressure in recent months, and the Bank deemed domestic growth prospects “largely intact over the medium term”.

As in past months, the Bank’s communique lacked explicit forward guidance. Nevertheless, in a subsequent press briefing, Governor Eli Remolona struck a hawkish tone, saying that any cuts remained unlikely at present, and if any were to take place in Q3, they would not exceed 25 basis points. Our Consensus is for the RRP rate to end 2024 roughly 80 basis points below current levels. The U.S. Fed’s pivot, the strength of the peso and the trajectory of domestic inflation remain key factors to watch.

The Bank will next convene on 16 May.

ANZ analysts Debalika Sakrar and Sanjay Mathur commented:

“We believe that the BSP will continue to remain in a “wait and watch mode” until the economic backdrop turns favourable for a rate cut. […] In our base case, we expect a rate cut to materialise only in Q4 2024. Our year-end 2024 policy rate forecast of 6.00% assumes 50bp rate cuts in the last quarter of 2024.”

United Overseas Bank analyst Loke Siew Ting said:

“The latest monetary policy statement and post-meeting press conference indicate that BSP sticks with its cautious rate-cut rhetoric. This is mainly due to the persistence of upside inflation risks, which we see intensifying due to the prolonged El Nino phenomenon and escalating geopolitical tensions in the Middle East. While there is a higher chance of delayed and fewer BSP rate cuts this year, we keep our view for now that the BSP will deliver a total of 75bps cuts this year.”

ING analyst Nicholas Mapa said:

“We still think the BSP will likely extend its pause and keep rates at 6.5% until the second half of the year. […] With the Fed possibly pushing back the timing of its rate cuts to the second half of the year and Philippine inflation projected to breach the upper end of the BSP’s target in the near term, we believe the central bank will extend its hold until the Fed finally cuts its own policy rates and headline inflation cools.”

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